according to the iasb’s conceptual framework, the
TRANSCRIPT
AM01/I.20m
© The MATSEC Examinations Board reserves all rights on the examination questions in all examination papers set by the said Board.
MATRICULATION AND SECONDARY EDUCATION CERTIFICATE
EXAMINATIONS BOARD
ADVANCED MATRICULATION LEVEL
2020 FIRST SESSION
SUBJECT: Accounting PAPER NUMBER: I DATE: 7th September 2020
TIME: 4:00 p.m. to 7:05 p.m.
This paper contains THREE sections. Follow the instructions below.
Section A
Answer all FIVE questions in this section. Each question carries 4 marks.
Section B
Answer question 6. This question is compulsory and carries 30 marks.
Section C
Answer any TWO questions from this section. Each question carries 25 marks.
You must show the working leading up to your answers.
Candidates may only use non-programmable calculators in this examination.
SECTION A
Answer ALL questions in this section. This section carries a total of 20 marks.
1. (a) What is the difference between a bonus issue, a rights issue and a public issue of shares?
(3)
(b) Describe ONE reason why a listed company may decide that a bonus issue of shares
would be more advantageous than other types of issues. (1)
2. Distinguish between a private company, a public company and a listed company.
(4)
3. Briefly describe the main sections of the Statement of Cash Flows and explain the objective
of such a statement. (4)
4. According to the IASB’s Conceptual Framework, the objective of a set of financial statements
is to provide information to aid decision making. Describe TWO qualitative characteristics
that the information in the financial statements should have in order to achieve this objective.
(4)
5. Provide ONE example that illustrates how a business acts as a collector of value added tax
on behalf of the Commissioner for Revenue. (4)
(Total: 20 marks)
Questions continue on next page
AM01/I.20m
Page 2 of 10
SECTION B
Answer Question 6 in this section. This question is compulsory and carries 30 marks.
6. Mrs Alexia Jones is the owner of Scuba Manufacturing. The following balances were extracted
from the books on 31 December 2019:
€ €
Sales 490,000
Raw material purchases 195,000
Carriage in 3,300
Carriage out 5,400
Returns in 8,200
Returns out 11,400
Warehouse rent 7,800
Discount Allowed 9,600
Discounts Received 12,300
Inventories: Raw Material 18,600
Finished goods 27,500
Work-in-progress 7,200
Motor Vehicles (at cost) 84,500
Plant & machinery (at cost) 180,000
Office equipment (at cost) 16,000
Accumulated Depreciation:
Motor vehicles
28,000
Plant & machinery 38,500
Office equipment 9,400
Loose tools 9,200
Direct wages 55,000
Factory indirect wages 14,600
Salaries 19,200
Factory maintenance 12,600
Electricity 16,900
Insurance 8,500
Premises rent 32,000
Administration expenses 18,400
Marketing expenses 21,300
Trade receivables 24,200
Trade payables 15,300
Cash 8,945
Bank 31,525
Capital 150,000
Drawings 21,300
5% loan 100,000
Interest paid on loan 2,500
Allowance for doubtful debts 1,870
Provision for unrealised profit 2,500
859,270
859,270
AM01/I.20m
Page 3 of 10
Consider the following information:
a) Manufactured products are transferred to finished goods at cost plus 10%.
b) Inventories on 31 December 2019 were valued as follows:
Raw Materials €24,800
Finished Goods €31,350
Work-in-Progress €13,055
c) Loose tools at the year-end were valued at €7,600.
d) Annual depreciation is to be provided for as follows:
Plant and Machinery 10% of original cost
Motor Vehicles 30% on written down value
Office equipment 25% of cost
e) An invoice for €6,500 relating to new parts for a motor vehicle was posted to purchases of
raw material.
f) The motor vehicles are used for production purposes, however, Mrs Jones estimates that 10%
of motor vehicle expenses were for her personal use.
g) The warehouse is used to store raw materials and finished goods in the ratio 1:2,
respectively. Warehouse rent is payable quarterly in advance on 1 February, 1 May, 1
August and 1 November. The rent per annum is subject to revision every five years, and
was last revised in 2017.
h) The Insurance account includes the payment of an annual premium amounting to €3,000
covering the period 1 July 2019 to 30 June 2020.
i) Accrued electricity amounted to €2,800, and factory indirect wages due were €3,500.
j) The following expenses are to be apportioned as indicated:
Manufacturing Administration
Insurance 60% 40%
Premises rent 80% 20%
Electricity 50% 50%
k) The allowance for doubtful debts of €1,870 as shown in the trial balance relates to one specific
debt. Negotiations to arrive at a settlement have failed and it has been decided to write off
this amount.
l) During the year, Mrs Jones had taken raw materials amounting to €1,200 for personal use.
Required:
Prepare the following statements of Scuba Manufacturing for the year ended 31 December 2019:
A. The Manufacturing Account and the Statement of Profit and Loss; (18)
B. The Statement of Financial Position. (12)
(Total: 30 marks)
Questions continue on next page
AM01/I.20m
Page 4 of 10
SECTION C
Answer any TWO questions from this section. Each question carries 25 marks.
7. The following information relates to the Dinghy Enthusiasts’ Club, which is in the process of
preparing its accounts for the year ended 31 December 2019.
On 31 December 2019, the club had 130 members on its register.
The annual subscription fee is €60, payable at the beginning of each year.
On 1 January 2019, 12 members had not yet paid their 2018 subscription; while 10 had already
paid their 2019 subscription in advance. Of the 12 members who were in arrears, 3 never paid
their 2018 subscription and were struck off the members’ register on 1 December 2019.
18 members included in the register had not yet paid the 2019 subscription, while 9 had paid
subscriptions for both the current year and also for the following year ending 31 December 2020.
The Dinghy Enthusiasts’ Club operates a life membership scheme against a one-time payment of
€500. Fees received under this scheme are recognized over a 10-year period. The scheme started
in 2017 with 10 members. 7 members joined the scheme during 2018, while another 8 joined
during the current year ended 31 December 2019. Life members are included in the club’s
register.
Apart from the above, other receipts and payments were as follows:
Receipts € Payments €
Bar takings 15,300 Insurance 1,200
Donations (revenue) 840 Transport for competitions 1,640
Tickets for competitions 4,700 Repairs to premises 960
Bar purchases 6,650
Trophies and medals 1,100
Printing & stationery 620
Barman’s wages 3,600
Licences 4,200
New equipment 3,800
The club organises dinghy sailing competitions on a regular basis, and, apart from the expense
for transport, trophies and medals shown in Payments above, it also provides refreshments, which
were taken directly from bar stock. The cost of refreshments related to the competitions was
€560.
Equipment is depreciated at 20% of its book value.
AM01/I.20m
Page 5 of 10
Further information:
1 January 2019 31 December 2019
Equipment 21,800 ?
Bar Inventories 1,260 860
Bar payables 750 1100
Trophies at cost 850 590
Wages owing: Barman 360 480
Bank (Dr. balance) 1,490 ?
Required:
A. For the twelve months ended 31 December 2019, prepare for Dinghy Enthusiasts’ Club:
i. The Subscriptions Account and the Life Membership Fund Account. (4)
ii. The Bar Trading Account and the Competitions Account. (3)
iii. The Income & Expenditure Account. (6)
iv. The Statement of Financial Position as at 31 December 2019. (8)
B. Very often, members make voluntary donations to clubs. These might consist of cash and
perishables or equipment considered as non-current assets. Give a brief explanation of the
difference in the accounting treatment of the two. (4)
(Total: 25 marks)
Questions continue on next page
AM01/I.20m
Page 6 of 10
8. Bayes Limited is a manufacturer of high quality garments sold in stores nation-wide and has
experienced reasonable growth over the last year. A substantial capital injection was made
during 2019, via new shares and debentures, in view of plans to expand the operations of
the company. As a Director of Bayes Limited, you are currently analysing the Company’s
financial statements to be able to report on the company’s financial performance, efficiency
and solvency to your fellow directors at the next meeting. The following financials are
available:
Statement of Profit and Loss 2019 2018
€ € € €
Turnover
2,025,000
1,350,000
Cost of Sales 1,157,100 900,000
Gross Profit 867,900 450,000
Administrative Expenses
158,000
158,000
Finance Costs 108,000 12,500
266,000 170,500
Profit Before tax
601,900
279,500
Income tax Expense 210,665 97,825
Profit for the Year
391,235
181,675
AM01/I.20m
Page 7 of 10
Statement of Financial Position 2019 2018
ASSETS
€ € € €
Non-Current Assets
Property Plant and Equipment
1,910,000 500,000
Current Assets
Inventories 35,000 175,000
Trade Receivables 130,000 50,000
Cash and Cash Equivalents 80,235
37,500
245,235 262,500
Total Assets
2,155,235 762,500
EQUITY AND LIABILITIES
Equity and Reserves
Ordinary Share Capital
(€1 Nominal Amount)
600,000
400,000
Retained Earnings
421,235 30,000
1,021,235 430,000
Non-Current Liabilities
Debentures 900,000
125,000
Loan 105,000
155,000
1,005,000 280,000
Current Liabilities
Trade Payables 75,000
46,250
Interest Payable 54,000
6,250 129,000 52,500
Total Equity and Liabilities
2,155,235 762,500
Required:
A. Prepare a short report, analysing how the financial position and performance of Bayes Limited
has developed from 2018 to 2019. Your report should contain the following sections,
containing the relevant accounting ratios and respective analyses of these ratios:
i. Profitability considerations (3 ratios);
ii. Liquidity considerations (3 ratios);
iii. Capital structure, solvency and shareholder return (3 ratios); and
iv. Efficiency (1 ratio). (20)
B. A fellow Director has had a look at your analysis and asked why you have analysed both the
Company’s Liquidity and Solvency Ratios. Define what is meant by both the Liquidity and
Solvency of a company, and outline ONE reason why you think that both need to be analysed.
(5)
(Total: 25 marks)
Questions continue on next page
AM01/I.20m
Page 8 of 10
9. You are currently preparing to close off the year-end financial statements of Euler Ltd, a
company that develops specialised software solutions. You have been provided with the
following draft Statement of Financial Position and Statement of Profit and Loss and Other
Comprehensive Income for 2019:
Euler Limited
Statement of Financial Position as at 31 December 2019
ASSETS € € €
Non-Current Assets
Property Plant and Equipment 1,009,530
Research Costs 150,000
Software Development Costs 365,000
1,524,530
Current Assets
Trade Receivables 112,000
Other Receivables 6,000
Cash and Cash Equivalents 135,470
253,470
Total Assets
1,778,000
EQUITY AND LIABILITIES
Equity and Reserves
Ordinary share Capital 800,000
Retained Earnings 164,000
964,000
Non-Current Liabilities
3% Loan payable 490,500
Current Liabilities
Trade payables 163,500
Other payables 5,000
Provisions 65,000
Final proposed dividend 90,000
Total Current Liabilities 323,500
814,000
Total Equity and Liabilities
1,778,000
AM01/I.20m
Page 9 of 10
Euler Limited
Draft Statement of Profit and Loss and Other Comprehensive Income
for the year ended 31 December 2019
€ €
Revenue 1,568,000
Cost of Sales (627,200)
940,800
Research Costs 140,000
Selling and Distribution Expenses 17,000
Administration Expenses 66,000 (223,000)
717,800
Finance Charges (14,715)
Profit for the year 703,085
Total Comprehensive Income 703,085
Following an internal review by your manager and the accounting team discussion, the following
has come to light after preparing the above drafts:
a) On 13 December 2019, the civil court ruled in partial favour of Euler Limited, in respect of a
case brought against it by one of its customers. The company had last year provided for the
full amount of €65,000, based on their lawyer's best estimate, as reflected in the draft balance
sheet. The court ruled that Euler Limited was sentenced to pay €15,000 only in respect of
this case. The customer is not expected to appeal from this decision. The final amount due
as per the court decision was still unpaid as at 31 December 2019.
b) Two large customers, who in total owe €32,000, operate in a sector that is facing an economic
downturn. Expected losses on these amounts are estimated at €11,200, but have not yet
been considered in the draft statements above.
c) It is Euler Limited's policy to amortise Intangible Assets over a 5 year-period, using the
straight line method, and to test for impairment annually. No adjustments for amortisation
have been reflected in the draft statements as at 31 December 2019.
d) Research costs of €150,000 shown in the above draft statement of financial position, pertain
to experimental investigations into new block chain software. However, as at 31 December
2019, the developers advised the director that the project is still in its initial experimental
stages and it is uncertain whether the outcome of this project will render any cash flows to
Euler Limited in the foreseeable future.
e) The development costs of €365,000 were incurred during 2019. The amount includes
€80,000, for which the recoverable amount was established at €50,000 by technical experts.
f) Office Fittings are valued under IAS 16's (Property, Plant and Equipment) cost model,
adopting the straight line method at the percentages detailed in the below table. On the other
hand, computer equipment is depreciated using the reducing balance method at the rate
shown in the below table.
Question continues on next page
AM01/I.20m
Page 10 of 10
g) The Company adopts IAS 16's revaluation model to value its land and buildings. Land is not
depreciated but buildings are depreciated at 5% per annum using the straight line method.
On 1 January 2019, Land and Buildings were revalued to €450,000 and €80,000, respectively,
but were not adjusted for as at 31 December 2019.
It is the company's policy that a full year's depreciation is charged in the year of acquisition
and none in the year of disposal.
Non-current asset Date of
Purchase
Cost
€
Depreciation Rate
{p.a.}
Office Fittings 01/01/2017 35,000 25.00%
Computer Equipment 01/01/2018 900,000 33.33%
Land 01/01/2017 320,000 not depreciated
Buildings 01/01/2017 80,000 5.00%
No Depreciation Adjustments for the year 2019 have been made in the draft
statements.
h) The dividend included in the above Statement of Financial Position was proposed by the Board
of Directors on 31 December 2019.
Required:
A. Prepare a revised Statement of Profit and Loss and Other Comprehensive Income for Euler
Limited for the year ended 31 December 2019, taking into account the considerations
(a)-(h) above. Published Accounts as per IAS 1 Presentation of Financial Statements are NOT
required. Ignore Taxation. (10)
B. Prepare a revised Statement of Financial Position as at 31 December 2019.
Published Accounts as per IAS 1 are NOT Required. (10)
C. After the accounts for 2019 are finalised, the Directors of Euler Limited are considering revising
their accounting policies and estimates. In particular, they are concerned that the
5-year period over which Intangible assets are amortised might be too prudent, and are
considering a 7-year period instead. Briefly outline how Euler Limited would account for this
change in line with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
(5)
(Total: 25 marks)
AM01/II.20m
© The MATSEC Examinations Board reserves all rights on the examination questions in all examination papers set by the said Board.
MATRICULATION AND SECONDARY EDUCATION CERTIFICATE
EXAMINATIONS BOARD
ADVANCED MATRICULATION LEVEL
2020 FIRST SESSION
SUBJECT: Accounting PAPER NUMBER: II DATE: 9th September 2020
TIME: 4:00 p.m. to 7:05 p.m.
This paper contains THREE Sections. Follow the instructions below.
Section A
Answer ALL questions in this Section. Each question carries 4 marks.
Section B
Answer question 6. This question is compulsory and carries 30 marks.
Section C
Answer any TWO questions from this Section. Each question carries 25 marks.
You must show the working leading up to your answers.
Candidates may only use non-programmable calculators in this examination.
SECTION A
Answer ALL questions in this section. This section carries a total of 20 marks.
1. With reference to IAS 2 Inventory:
a) Identify TWO cost elements that could be included as part of the cost of inventory, and
TWO cost elements that should not be included. (2)
b) Define net realisable value of inventory, and explain the accounting treatment when the
net realisable value of inventory differs from its original cost. (2)
2. Provide TWO reasons why overhead absorption rates are calculated from budgeted figures.
(4)
3. a) Briefly describe the circumstances that determine whether a firm should adopt job costing
and when it is appropriate to use process costing. (3)
b) Provide TWO examples of industries that would use job costing and TWO others that
would use process costing. (1)
4. Define the terms ‘break-even point’ and ‘margin of safety’. Illustrate your answer by drafting
a break-even chart. (4)
5. a) Explain what gives rise to a total direct material cost variance and state how it is
analysed. (3)
b) Describe TWO situations that may result in an adverse total direct material cost variance.
(1)
(Total: 20 marks)
AM01/II.20m
Page 2 of 5
SECTION B
Answer Question 6 in this Section. This question is compulsory and carries 30 marks.
6. Since a very young age, Elisa Cachia has been fascinated by the art of knitting and has always
been complimented for her work. Elisa would like to start selling her knitted products as from
October 2020. She has requested your assistance to provide her with projections on the cash
requirements based on the following information:
a) In September 2020, Elisa plans to withdraw €1,000 from her personal savings account to invest in
the new venture.
b) Elisa plans to kick start her business by selling hand knitted blankets. In 2021, she plans to
introduce other knitted products. Monthly sales in number of blankets have been forecasted as
follows:
c) Elisa will be selling blankets to both retail outlets and individual customers. 40% of the sales will
be to retail outlets. Half of the sales revenue from the retail outlets is expected to be received
during the month the blankets are sold, whilst the remaining 50% will be received in 2 months’
time. Individual customers are expected to pay cash and will benefit from a 10% cash discount.
d) Elisa estimates that she will require 6 balls of 100% cotton Cestari yarn per blanket, costing €4 per
ball of yarn, various haberdashery items costing €2 per blanket and €0.50 of packaging material
per blanket. Elisa sets the selling price at a gross profit mark-up of 30%, assuming that material,
haberdashery and packaging material are the only costs of production.
e) At the beginning of October, Elisa shall receive sufficient material to be able work on the October
orders and 20% of the following month`s orders. At the end of each month, she plans to have
sufficient stock to cover 20% of the following month`s orders. Elisa estimates that she will pay
25% of the purchases on delivery, whilst the remainder during the month following the purchase.
f) Elisa will work from her house. However, she forecasts that, in October, she will be incurring an
additional €50 in electricity bills. It is estimated that this extra electricity expense shall increase by
10% every month. The utilities bill is received every two months and is payable one month in
arrears. In October 2020, Elisa shall pay the last utilities bill received in September 2020, which
covered the period July and August 2020.
g) Most of the sales will come through the website, which Elisa will launch for this purpose. She will
engage a third party to set up the website for a total cost of €350. She has been requested to pay
a deposit of 20% on confirmation in September 2020, whilst the remainder will have to be settled
once the website is up and running in October 2020. Web maintenance fees are expected to amount
to €20 per month, payable one month in advance starting from the date on which the website goes
live. Elisa thinks that the website would need to revamped after two years.
Required:
A. Prepare a monthly cash budget for the THREE months ending 31 December 2020. (17)
B. Draft a projected Statement of Profit and Loss for the same three-month period and a budgeted
Statement of Financial Position as at 31 December 2020. (13)
(Total: 30 marks)
October 2020 November 2020 December 2020 January 2021
No. of blankets 20 40 70 80
AM01/II.20m
Page 3 of 5
SECTION C
Answer any TWO questions from this Section. Each question carries 25 marks.
7. Inhaffu Limited manufactures three products for the local market, namely, products A, B and
C. The company is undergoing a restructuring process and one of the items being discussed
is the introduction of an incentive scheme for its factory workers. The factory employs an
average of 400 workers, and in the previous financial year, 80 workers left the factory to find
alternative employment.
The following information is available for four of the factory’s employees during the first week
of March:
Employee Bean Dean Jean Sean
Actual hours of work – Hours 39 38 40 37
Hourly rate of Pay - € 8.50 6.00 7.50 11.00
Units produced – A 110 - 240 200
- B 145 - 150 300
- C 84 110 - -
For piecework purposes, the rate of pay is €9 per standard hour of production. The standard
time allowed per unit is as follows:
Product A B C
Minutes 3.00 6.00 15.00
Required:
A. Calculate the gross wages for each employee during the first week of March, using the
following methods of labour remuneration:
i) Hourly rate (Basic Salary);
ii) Piecework (Flat Piece Rate System);
iii) Piecework with remuneration guaranteed at 90% of the basic salary; and
iv) Basic salary plus an individual bonus calculated at 50% of the time saved. (16)
B. Calculate the labour turnover rate of Inhaffu Ltd. (4)
C. Comment on the labour turnover rate of Inhaffu Ltd, describing FOUR ways how a high labour
turnover may impact the company. (5)
(Total: 25 marks)
Questions continue on next page
AM01/II.20m
Page 4 of 5
8. Sports Limited is a company manufacturing and exporting table-tennis rackets. It commenced
its operations on 1 January 2017. Investment in new machinery is needed to meet the ever-
increasing demand for the company’s product. In order to determine the extent of financing
required, the profit statements for the past three years were analysed.
The following costs were incurred during the past three years:
Year 2017 2018 2019
€ € €
Direct Materials 264,000 288,100 367,200
Direct Labour 246,400 258,000 316,200
Variable Overheads 114,400 116,100 142,800
Fixed Factory Overheads 140,800 141,900 147,900
Selling and Marketing Expenses 22,000 42,000 64,000
Administration Expenses 28,000 35,200 41,500
Production and sales were as follows:
Year 2017 2018 2019
Sales – Units 7,600 8,700 9,900
Production – Units 8,800 8,600 10,200
The selling price of the table-tennis rackets was increased each year to meet the rise in costs.
Despite the higher price, the quality of the product and increase in marketing expenditure
still resulted in an increase in sales quantity. Selling prices were as follows:
Year 2017 2018 2019
€ € €
Selling Price per Unit 110 114 120
Sports Limited absorbs overheads using a rate per unit. Assume that budgeted production
units per annum were equal to actual units produced each year; and that there were no
variances between budgeted and actual overheads.
Sports Limited uses the first-in first-out (FIFO) method of inventory valuation.
Required:
A. Calculate the production cost per unit for the past three years using:
i) Marginal costing;
ii) Absorption costing. (6)
B. Prepare statements of profit/loss for the past three years using:
i) Marginal costing approach to valuing inventory;
ii) Absorption costing approach to valuing inventory. (8)
C. Prepare a reconciliation of the marginal costing profit with the absorption costing profit for
each year. (6)
D. Using the figures obtained above, briefly explain the reasons giving rise to the difference in
profits. (5)
(Total: 25 marks)
AM01/II.20m
Page 5 of 5
9. Three Limited manufactures three products, namely, Product One, Product Two and Product
Three. The following information is available for the next financial year:
Product One Two Three
Sales – Units 7,200 1,800 3,800
€ € €
Selling Price per Unit 19.50 38.00 14.25
Unit Cost: € € €
Direct Materials 1.50 5.90 1.25
Direct Labour 5.75 7.25 4.00
Variable Overheads 3.00 3.50 1.80
The following fixed costs are expected to be directly incurred for each product:
Product One Two Three
€ € €
Fixed Costs 2,600 3,100 1,900
General fixed costs per annum amount to € 38,000.
Infinite Limited, another company manufacturing the same products, has approached Three
Limited and is offering to supply all three products at the following prices per unit:
Product One Two Three
€ € €
11.00 20.00 7.00
Required:
A. As the company’s advisor, identify which products the company should produce and which
products it should buy ready-made. (6)
B. Prepare a profit statement for the next financial year assuming the company manufactures
all products. (4)
C. Prepare a profit statement for the next financial year if your advice in (A) is accepted. (4)
D. Infinite Limited is offering a discount of 5% on the quoted prices should Three Limited buy
all three products. Prepare a profit statement should the company accept the offer to
purchase all the three products at the discounted price. (6)
E. Compile a report advising on the best course of action for Three Limited, and state what other
considerations management must take into account in reaching its decision. (5)
(Total: 25 marks)